Hewlett Packard Enterprise (HPE) is in talks to acquire cloud computing firm Nutanix, Bloomberg reported on Thursday, quoting sources familiar with the matter.
The deal between the two companies could be mutually benefitial according to experts.
Nutanix offers its customers an open, software-defined hybrid cloud platform. HPE, on the other hand, calls itself an edge-to-cloud company that helps customers protect, analyze, and act on their data and applications from anywhere.
“The two companies have a symbiotic and competitive relationship. It is symbiotic because when Nutanix goes to the market to sell the HCI products, it sometimes uses HP servers to package the HCI deal,” said Sanchit Vir Gogia, chief analyst and CEO at Greyhound Research. “At the same time, HPE has a portfolio called SimpliVity, which is hyper-competitive with Nutanix.”
In recent months, there have been talks on and off between the two companies, the Bloomberg report said.
Nutanix is valued at over $6.5 billion
As of Wednesday, Nutanix had a market capitalization of about $6.5 billion, while HPE was worth over three times of that at $21.6 billion.
For the financial year 2022, Nutanix posted revenue of $1.6 billion while HPE revenue stood tall at $28.5 billion.
“The enterprise software business is a scale business, a big boys’ play. So, Nutanix will either have to acquire firms and get to the next level of scale or they will have to consider an option of getting acquired from other firms,” said Pareekh Jain, CEO at Pareekh Consulting.
In October, Nutanix was reportedly exploring sale opportunities after receiving a takeover interest.
“HPE has more than 100,000 customers, over five times the size of Nutanix customer base. From HPE’s perspective, they will get a growth portfolio which they can cross-sell to their customers, and Nutanix will get to work with a larger customer base of the HP group,” Jain said.
During the COVID-19 pandemic, the demand for cloud computing firms surged as businesses had to speed up the process of their digital offerings. Spending on cloud services in 2022 has been $490.3 billion, according to Gartner, and is expected to reach nearly $600 billion by next year, growing at over 20% year-on-year.
HPE has a large legacy portfolio, while Nutanix has a growth portfolio with more software solutions, Jain said. “HPE wants to get into high-growth areas of cloud software, so Nutanix is the right fit for them. Nutanix can help HPE accelerate the transformation into new cloud services.”
Customers might have to pay more for cloud services
While the deal with Nutanix, HPE could have a twin advantage—lower operational costs, and a higher potential to charge more for its cloud services.
HPE currently uses Microsoft or VMware for the virtualization platform. If they use the Nutanix platform, the licensing cost can benefit HPE directly, Gogia said.
Customers on the other hand can expect higher pricing post the acquisition as HPE will get a more dominant market share, allowing them to command higher pricing, Gogia said. “While the deal can give customers better support from the companies, they can also expect higher pricing. As seen in the past, after the company has been acquired the licensing cost and pricing overall go north in the range of 20% to 30%.”
Mergers and Acquisitions